GST may derail Ola & Uber's cab-leasing programmes

Employees associated with the driver experience teams indicate challenges dealing with a further backlash from the drivers in the coming month.Shashwati Shankar | ET Bureau | July 03, 2017, 08:22 IST

Uber and Ola drivers associated with both companies cab-leasing programmes will see a hike in the amount of tax paid on leasing under the new GST regime. Tax rates are expected to go up from 14.5% to a range between 29% and 43%, according to company officials at Ola and Uber, besides analysts tracking the space.

The drivers will have to pay an additional fee of approximately Rs 1 lakh annually, with their monthly EMIs going up significantly.

Employees associated with the driver experience teams indicate challenges dealing with a further backlash from the drivers in the coming month who have already been protesting against their falling incomes as these companies cut back incentives.

"At Ola Fleet Technologies, we run a leasing programme for tens of thousands of driver-partners who may not be able to afford buying a car of their own. Presently, these driver-partners pay 14.5% VAT. In the proposed GST regime, they will have to bear GST rates of 29% to 43% on the cars already leased, as an outcome of double taxation on existing leases," said Shalabh Seth, CEO of Ola Fleet Technologies, a wholly-owned subsidiary of Ola, in response to ET's queries.

"This will have an adverse impact on their livelihoods, setting them back by over Rs 1,00,000 for the remaining period of the lease, making it unviable to sustain their business," he added. Drivers associated with both the cab-hailing applications leasing programmes pay approximately Rs 825 a day as a part of the rental fee, this amounts to around Rs 25,000 a month. The payment plan works over a three or four-year period. However, post GST, the drivers are likely to see a significant hike in monthly EMIs according to analysts.

'Burden to fall on drivers'

"This 29% to 43% GST rate range can be explained by understanding that there is a service charge of around 18% plus over 20% vehicle sale tax on the leased vehicles that comes under GST. The burden of paying this will ultimately come upon the drivers. However, it's likely the drivers will try to renegotiate the contract but nullifying the existing contract will be a problem or they will try to return the cars to the company and get back their security deposit of around Rs 30,000," said Jaspal Singh, partner at Valoriser Consultants.

Analysts estimate that approximately 7,000 to 8,000 drivers each are associated with Ola and Uber's cab-leasing programmes. Drivers paying an EMI of Rs 25,000 pre GST will end up paying an EMI of around Rs 35,000 to Rs 40,000 post GST.

According to two Uber executives, the leasing service that the company offers is not a prominent part of the business, however, they expect the drivers to revolt against the high rates later this month. "Leasing is not a business we are looking to strengthen for sure, the overall sentiment in leasing will be all the more low now because of GST rates and the lack of provision for the hike in taxations.

Besides this, the chances of default payments on the leasing drivers end is likely to go up or they will try to return the vehicles," said an Uber executive, speaking to ET on the condition of anonymity.

ET reached out to Praful Shinde, a member of the Action Committee of Maharashtra that spearheaded driver protests against Ola and Uber in Mumbai, Mukkawar Sunil, president of the Telangana Cab Association, Tanveer Pasha, president of the Ola, TaxiForSure and Uber Drivers' Association in Bengaluru and Tamal Arasan, president of the Ola and Uber driver union in Chennai, all of whom claimed they had not heard of the impact of GST rates for drivers who were associated with both companies cab-leasing business or heard from company representatives on the matter.

"There is a lack of transparency prevalent between the driver unions and the cab-hailing apps when it comes to discussing incentives, per km rates and payment hikes and in this case the GST rates. So it is to be seen how the drivers will react when they are made aware about it. We can expect payment defaults or drivers turning away from the leasing business, which will further cause problems for both companies who have taken loans for the vehicles," said an analyst, speaking anonymously to ET.